GMROI stands for “gross margin return on inventory.” This is a quick measurement for determining how quickly a business can turn inventory into cash flow. A GMROI above 1 suggests that a business is selling products for more than it costs to acquire it, and most retailers target a rate of 3 to 4. The GMROI is calculated as gross margin divided by the average inventory cost (GMROI = gross margin / average inventory cost).

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